Foreign governments have reacted with relief to the Greek parliament's vote in favor of a far-reaching austerity package. But demonstrators in Athens responded to the news with rage amid brutal clashes with police. Prime Minister George Papandreou can expect further resistance to his reforms.

At the moment when the largest austerity package in Greek history was being passed, it was relatively quiet on Athens' Syntagma Square. Demonstrators sat on the ground, their shoulders slumped and heads down, smoking, chatting and drinking water from plastic bottles. They looked resigned, even while their leaders were still calling for an uprising.

Then all hell broke loose.

The Greek riot police hurled tear-gas grenades into the crowd from left and right. Rubbing their eyes, people started moving -- running, stumbling, unsure which way to go, only wanting to get out and reach safety. Many started shouting. Others, gasping for air, looked for their friends. A young woman yelled: "Help me!" Meanwhile, the rain of stones, bottles and tear gas grenades continued amid the chaos.

'I shouldn't really say this" – my interlocutor was a key member of the Greek parliamentary left – "but we need a Chirac. Where is De Gaulle? Where is Chirac. Where is the leadership going to come from to get us out of this?" The question goes to the heart of the way Greeks see the crisis: now their austerity plan has passed in parliament, the absence of strategy at a eurozone level is where the risk lies.

The austerity package buys immediate respite in the form of a €12bn tranche of bailout money this weekend. But without honest answers to the question of how much Greek debt is to be written off, and by whom, the threat of a chaotic downfall will be ever present.

As I have pushed my way through the rioting throngs these past two weeks, there has been an insistent theme to the comments: "This is coming to you: you're next. Italy, Britain, America – everybody's in the same condition."

Technically this is not true: Greek debt is junk, governance is teetering, popular morale close to broken. But while markets will only insure Greek debt for 60% of its value, the threat of even the slightest downgrade for Britain or the US remains just that, a threat.

But it has dawned on me, scurrying through clouds of teargas and slipping on blood, that the protesters are on to a bigger point. The governance dysfunction we see in Greece is replicated at a higher level in Europe; and the solvency threat in Greece does pose survival-level issues for the currency itself.

The battle to prevent Greece lurching into disorderly default continues as lawmakers return to the Athens parliament on Thursday to approve the next stage in the hugely unpopular austerity package.

Having approved the €28bn (£25bn) programme of fresh taxes and cutbacks in principle on Wednesday, Greek MPs will vote on an enabling bill giving the government authority to implement the new measures speedily. Analysts are broadly confident that the legislation will pass but are still unconvinced that George Papandreou's administration can actually implement the tough measures in the face of deep public hostility.

"If we wanted to be cynical, or realistic, we could say that the disaster scenario has been averted for now but we may well be revisiting in three or six months," predicted Gary Jenkins of Evolution Securities in a research note on Thursday morning. Jenkins fears that Greece will fail to make enough progress to placate its European neighbours and the International Monetary Fund (IMF), which it relies on for its funding.

Greek lawmakers voted Thursday to speed the enactment of the country’s new austerity measures, clearing the way for foreign lenders to make available the next installment of aid needed to meet the government’s expenses through the summer.

The vote followed a more significant milestone on Wednesday, when Parliament narrowly approved a package of spending cuts and tax increases, along with the sale of government assets, as protesters battled the police in the streets surrounding Parliament.

The complex bill to carry out the austerity measures passed Thursday, with all 154 of the governing Socialists plus one conservative deputy voting in favor. There were 136 votes against it, along with 5 blank ballots and 4 abstentions. The center-right New Democracy Party opposed the bill in principle, as it had the measures themselves, saying they called for too much austerity and would make it more difficult for the Greek economy to grow.

With Thursday’s vote, the spotlight will now shift to Greece’s foreign lenders — the European Union, European Central Bank and International Monetary Fund — which are expected to unlock $17 billion in aid that the country needs to meet its debt obligations through August.

Confrontations between the police and protesters reached a violent climax here on Wednesday as armored riot officers beat back demonstrators and fired volleys of tear gas into the crowds who had gathered outside Parliament. Inside, lawmakers approved a package of austerity measures aimed at helping Greece avoid a default.

On the second day of a two-day general strike called by unions, rogue protesters also attacked the Finance Ministry on Syntagma Square across from Parliament and set fire to a post office in the ground floor of the building. The King George Palace, a luxury hotel that faces the square, was evacuated in the afternoon.

A police spokeswoman said that 31 police officers were injured and that 30 people had been detained, leading to 11 arrests. Local news media reported that dozens of protesters were hospitalized, and video clips showed the police striking people with their batons.

Amnesty International released a statement on Wednesday condemning the “repeated use of excessive force by police in recent demonstrations, including the disproportionate and indiscriminate use of tear gas and other chemicals against largely peaceful protesters.”

For sale: stake in Greek power company: former state monopoly, government unwilling to give up control, militant trade union, close ties to ruling socialist party, host of cost and efficiency issues. Serious offers only.

A truthful sales description for Greece’s Public Power Corporation (PPC) would highlight the challenges facing Evangelos Venizelos, the country’s finance minister, as he embarks on an ambitious privatisation programme demanded by the European Union and International Monetary Fund.

Under Greece’s bail-out programme – fast-track implementation of which was approved on Thursday – some €50bn of privatisation revenues are expected by 2015.

The sale of a 17 per cent stake in PPC, currently 51 per cent government owned, is on a long list of possible disposals that also includes stakes in other state utilities, concessions to operate airports and ports, and leases on state property and real estate for tourist development.

However, setting ambitious targets for privatisation proceeds will be much easier than achieving them. PPC is a case in point.

Germany has turned up the heat on other EU nations to agree further contributions to a second rescue package for Greece after finance minister Wolfgang Schäuble indicated his country's banks would roll over about €3bn (£2.7bn) of Greek debts.

Schäuble outlined the deal as Greek MPs voted to approve a package of spending cuts and privatisations needed to secure the next round of EU bailout funds.

The Berlin administration has forced German banks to identify €3.2bn in debt due for repayment by 2014. If the banks voluntarily agree to delay demands for repayment it could further ease pressure on the Greek government without triggering a default.

France's banks have already volunteered to roll over 50% of their maturing debt into new long-term bonds. British banks are understood to be assessing their own exposure to Greece in readiness to follow the French and German lead, but have yet to announce the level of debt they will roll over.

German banks have reached a voluntary agreement to contribute 3.2 billion euros to the next Greek bailout package through bond roll-overs. But a far greater sum will still be needed in order to rescue the country, which is being crushed by 300 billion euros in debt.

The German government and private creditors reached an agreement on Thursday that will see the banks contribute €3.2 billion ($4.6 billion) -- around one-third of the €10 billion in total Greek government bonds that are still on the books of German banks -- towards the next bailout package for debt-strapped Athens. Compared to Greece's total national deficit of more than €300 billion, however, the German contribution is quite small.

Thursday's deal has been described as preliminary, but German Finance Minister Wolfgang Schäuble, who is a member of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) party, said he was confident the details could be hammered out by Sunday. Deutsche Bank chief Josef Ackermann said that the deal would be based on the model worked out recently by French banks.

"We are convinced that Greece has to be helped further," Ackermann said Thursday. "We are taking the French draft as a basis but will build modifications and are very confident we will find a solution that will give satisfactory answers to all participants."

Under the French model, private lenders are rolling over 50 percent of the yields from Greek bonds that are due into new securities which will first mature in 30 years. A further portion would flow into a trust fund whose profits would be used to secure the entire investment.

German banks currently have around €10 billion in Greek government bonds on their books. Schäuble said that 55 percent of the bonds still in banks' possession are long-term and will first mature after 2020. However, the fundamental agreement reached on Thursday deals only with bonds that are due by 2014, holding a total value of €3.2 billion euros.

They had been warned. As Greece’s 300 legislators debated, and finally approved, an internationally backed financial-rescue plan with many clear downsides—it will pile pain onto hapless firms and citizens who already pay taxes, for instance, and so subsidise those who do not—some dire pronouncements on the possible consequences of saying “no” to the world were ringing in their ears.

A group of 18 Greek economists (mostly from the nation’s academic diaspora, in flight from the cronyism and disorder that mar campuses back home) listed some of the likely results if the country opted for autarky: in other words, if it stopped paying its debt and rejected the idea of moving, with foreign help, towards fiscal and administrative health. Public-sector wages would plunge, banks would crash, the country would be barred from world debt markets for years. Leaving the euro could cause hyperinflation.

Theodoros Pangalos, the famously blunt deputy prime minister, put it even more starkly. If Greece were to break with its would-be saviours and launch a new drachma, local banks would be besieged by panicked depositors and the army would have to keep order. “The shops will empty, and some people will jump out of windows,” he told El Mundo, a Spanish daily. (Last year Mr Pangalos irked some compatriots, and impressed others, by saying that ordinary Greeks, as well as the political elite, had wasted the loans and subsidies that rained down on the country: “We ate it up together.”)

Dire as these warnings sounded, this week the country still seemed finely balanced between those ready to embrace change and those who apparently dread it so much that they might bring the entire house down rather than risk any damage to their own interests. Alexis Papahelas, editor of Kathimerini, Greece’s newspaper of record, has coined the term “coalition of the unwilling” to describe the array of ultra-leftist and ultra-traditionalist forces bent on blocking reform. As he has noted, the number of citizens sullenly suspicious of all change may now increase, as middle-class Greeks see their hard-earned prosperity go up in smoke.

The biggest private Greek creditors are now in the bag. Days after the circulation of a plan drafted by French banks to roll over much of the Greek debt that they hold, German banks said that they would do much the same. No details are available, largely because they have yet to be thrashed out, but Joseph Ackermann, the boss of Deutsche Bank, and Wolfgang Schäuble, Germany's finance minister, said that they had agreed in principle that €3.2 billion ($4.6 billion) would be rolled over.

Exactly what will be done is still a bit of a mystery to both the banks and German politicians. This is because the plan that must emerge by Sunday will, like the existing French plan, probably be a fiendish construct designed by lawyers and accountants to deliver some relief to Greece without triggering a declaration by credit-rating agencies that the country is in default. Even if the details are fuzzy, the broad parameters of it seem clear. People close to the talks say that German banks (like their French counterparts) insist that they will only agree to a deal which, in accounting terms, does not force them to write down the value of the Greek bonds they hold.

Thus the German plan is likely to follow the broad outlines of the French one, with Greece borrowing more than it needs and setting some aside by buying safe collateral that could be used to repay banks part of their money if the country defaults. The interest rate that Greece has to pay will probably also be similar to the 5.5-8% proposed under the French plan, although in cash terms Greece would be paying a higher rate for the duration of the rollover because it would also be paying interest on money set aside as collateral.

Germany’s leading financial institutions have agreed to roll over €3.2bn holdings of Greek government bonds falling due up to and including 2014, Wolfgang Schäuble, finance minister, announced in Berlin.

The agreement in principle – subject to further negotiation of the details and agreement on contributions from other eurozone creditors – was described on Thursday by Josef Ackermann, chairman and chief executive of Deutsche Bank, as making a “voluntary and substantial” contribution to the support of Greece.

However it was greeted with disappointment by analysts, who said the sums involved in negotiations throughout the eurozone were unlikely to add up to a major contribution to a new Greek financial rescue package, or provide any significant debt relief.

“It is not that substantial,” said Silvio Peruzzo, Europe economist at the Royal Bank of Scotland. “The assumption that 80 per cent of private creditors would participate on a voluntary basis is probably too high.”

The Greek parliament's backing of a bruising austerity package this week has cemented spending cuts and tax increases as Europe's main strategy for solving the country's massive debt problem. But a few policy makers now want to see a tactical shift: giving European money to Greece to blunt the damage that deficit cutting will inflict on the economy in the coming years.

The effort is driven by concern that years of recession, followed by years of weak economic growth, will undermine Greece's ability to pay its debts. Worse, a weak domestic economy could sow the seeds of more acute political unrest, possibly pushing Greek politicians to abandon the austerity plan they adopted this week in the years to come.

"The Greek debt problem is also a problem of too-low economic growth," Belgian Prime Minister Yves Leterme said in a statement Thursday. "After the positive vote in the Greek parliament, Europe should give hope to the Greek people."

The biggest financial institutions in Germany followed the lead of their French counterparts Thursday by agreeing to roll over some of their holdings of Greek debt — a crucial step toward obtaining international agreement on a second bailout for the crippled Greek economy.

The German finance minister, Wolfgang Schäuble, said in Berlin that banks and insurance companies were “prepared to participate in a second aid program for Greece” as part of a wider European deal.

The news added to the relief in global markets after the Greek Parliament approved laws Wednesday and Thursday enabling new government spending cuts and revenue-raising steps.

The president of the European Commission, José Manuel Barroso, and the president of the European Council, Herman Van Rompuy, said in a statement Thursday that with the Greek Parliament’s actions, “the conditions are now in place for a decision on the disbursement of the next tranche of financial assistance for Greece and for rapid progress on a second assistance package.”

But other officials cautioned that a broader agreement on new aid for Greece was far from certain, in part because of requirements imposed by international lenders to ensure that Greece’s debt problems are contained.

Greece's chances of avoiding a catastrophic disorderly default appeared to improve on Thursday as the Greek parliament approved the second stage of its €28bn (£25bn) austerity plan, and Germany announced that its banks will support a new bailout package.

After heated debate, MPs narrowly voted in favour of an enabling bill that gives Greece's government the authority to implement the package of deep spending cuts and hefty tax rises that was approved in principle on Wednesday. The legislation was carried by 155 votes to 136.

Greece is now expected to receive €12bn in immediate aid from the International Monetary Fund, the European Union and the European Central Bank.

Herman van Rompuy, president of the European Council, swiftly welcomed the result, which also eases the way towards a second bailout package, likely to be worth around €110bn. "This was the second, decisive step Greece needed to take in order to return to a sustainable path. In very difficult circumstances, it was another act of national responsibility," he said in a joint statement with European Commission president José Manuel Barroso.

Greece has cleared the way for fresh international financial aid to avert a damaging default after its government won a second, decisive parliamentary vote on implementing sweeping austerity measures.

George Papandreou, socialist prime minister, on Thursday secured approval for fast track implementation of €28bn ($40.6bn) in tax increases and spending cuts demanded by the European Union and International Monetary Fund.

Following Wednesday’s initial vote in favour of the measures, the way is open for payment of €12bn in international aid in July and a deal on a second bail-out plan to replace a €110bn package put in place a year ago.

The government won by 155 votes to 136. A defeat would have revived worries about the stability of the eurozone.

Thursday’s debate took place without a repeat of Wednesday’s violent protests in the Athens streets, which saw stone-throwing demonstrators clash with police firing tear gas, although the police remained on standby for further trouble.

The Greek parliament was set to approve detailed austerity and privatization bills on Thursday to secure emergency funds and avert imminent bankruptcy, but longer-term dangers still lurk.

The euro and global stocks rose after Wednesday's first vote to adopt a five-year austerity plan despite fierce public opposition to more pay and spending cuts, as investors expressed relief an immediate meltdown had been avoided.

Belgian Finance Minister Didier Reynders said, as a result, euro zone finance ministers were likely to agree to release a next tranche of loans to Greece at a meeting Sunday.

That 12 billion euro loan will prevent Greece defaulting in mid-July or at the latest on August 20, when it must honor a big bond redemption, and shift the focus to a second assistance package likely to be about the same size as last year's 110 billion euro bailout.

Greece avoided an imminent default by taking a brave vote for more fiscal austerity on Wednesday. Europe and the International Monetary Fund will now release short-term financing to enable Greece to service its debts at least through the summer. Yet there can be no doubt that this second bail-out, which follows a similar short-term package in March 2010, must be the last of its kind. Either Greece with its eurozone partners will agree on a long-term solution, or the rioters in the streets of Athens will prevail the next time that the Greek political system is pushed to the financial brink.

The stalwart Greek people deserve our gratitude for this week’s vote. A default could have led to a dramatic unravelling of the European economy, and even beyond. Many of my colleagues in academia have blithely called upon Greece to default, and thereby force an involuntary restructuring of its debts. I find such advice to be naive. Nobody can guarantee a managed default in today’s global financial system. Bank runs, a contagion to other countries, the triggering of credit default swaps, legal actions by vulture funds that buy up cheap Greek bonds and then sue for full repayments, and heated political recriminations within Europe, are but some of the consequences that could quickly follow a default. An unravelling of the monetary union could not be excluded.

A default may indeed eventually occur, but should never be a first or early resort. I say this not because of the sanctity of sovereign debt contracts, but out of pragmatism. I myself have helped to negotiate a number of sovereign debt restructurings, from Bolivia to Poland to Nigeria and beyond. But Greece is different. It is a developed economy. It has not collapsed into hyperinflation. It has not emerged from externally imposed communism, as in Poland two decades ago. Greece over-borrowed and overspent, then got caught in accounting shenanigans as well as the global financial meltdown in 2008. Now Greece needs to adjust, if that adjustment is within reason and decency rather than the kind that would kill the economy.
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The euro maintained yesterday’s gain against the dollar on optimism Greece’s creditors will agree to roll over the nation’s debt to forestall the currency union’s first default.

The 17-nation euro advanced against 11 of its 16 most- traded counterparts after Germany welcomed proposals from French lenders on voluntary participation in the debt plan. Greek lawmakers tomorrow will vote on budget cuts and asset sales needed to secure a loan payment and future financing. The dollar dropped against most of its major peers before data forecast to show home prices in 20 U.S. cities dropped in April.

“The initial reaction is fairly positive” for the euro, said Grant Turley, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “French banks are arguably the largest private sector holders of Greece debt.”

The euro was at $1.4297 at 10:15 a.m. in Tokyo from $1.4287 in New York yesterday after earlier rising as much as 0.3 percent. The common currency traded at 115.47 yen from 115.58 yen, following yesterday’s 1.3 percent gain. It touched 89.58 British pence, the strongest since June 8, before trading at 89.46 from 89.35 yesterday.

The dollar fetched 80.76 yen from 80.89. It reached 80.98 yen yesterday, the highest level since June 16.

Greek Prime Minister George Papandreou called on lawmakers to obey their “patriotic conscience” and back tougher austerity measures, as they began to debate a five-year budget plan yesterday. Failure to pass Papandreou’s proposed 78 billion euros ($111 billion) of cuts and asset sales may lead to the euro area’s first sovereign default.

Athenians have had many worthy – or at least celebrated – interpreters over the last few days, and as the city erupted yesterday, they were hard at work. They were expected to answer questions: "Why are they on the streets?"; "Do they want a default?"; "Can't they see the need to swallow the medicine?"

I was born and raised in Athens. As a journalist on the ground yesterday, one of the country's darkest days in its post-junta history, I had to answer those questions. But I won't here: I write this as an Athenian, not a journalist.

This is a note about what I saw in my city, having arrived from London in the wee hours of the day that the Greek parliament passed a medium-term austerity plan to keep the bloodline of bailout funds flowing in, but that will simultaneously bleed the economy out.

Greek Prime Minister George Papandreou may struggle to persuade investors he can implement a $112 billion austerity plan as Parliament votes on it in the teeth of violent street protests.

Having approved a bill yesterday setting out his strategy for budget cuts, lawmakers have just started voting in another ballot that Papandreou must win to start executing measures ranging from tax increases to asset sales. That may be easier than inflicting the plan on an economy mired in recession whose population is already enduring an income squeeze to curb the nation’s record budget deficit.

Protests may resume later after a general strike and crowds of more than 20,000 people paralyzed central Athens for the past two days in a standoff focused on Parliament as lawmakers deliberate on Papandreou’s proposals. While approval today would pave the way for Greece to secure a fifth tranche of money from the European Union to prevent a default, the yield on the country’s two-year bond is still above 26 percent.

“There is a real risk that, given the political problems, given the process, that at some stage it’s the Greeks who give up on the program,” Andrew Balls, Pacific Investment Management Co.’s head of European portfolio management, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “The EU partners are spectators when it comes to the Greek political dynamics.”

The United Nations independent expert on foreign debt and human rights warned today that the austerity measures and structural reforms proposed to solve Greece’s debt crisis may result in violations of the basic human rights of the country’s people, the Office of the High Commissioner for Human Rights (OHCHR) reported.

“The implementation of the second package of austerity measures and structural reforms, which includes a wholesale privatization of state-owned enterprises and assets, is likely to have a serious impact on basic social services and therefore the enjoyment of human rights by the Greek people, particularly the most vulnerable sectors of the population such as the poor, elderly, unemployed and persons with disabilities,” said Cephas Lumina, who reports to the UN Human Rights Council in Geneva.

“The rights to food, water, adequate housing and work under fair and equitable conditions should not be compromised by the implementation of austerity measures,” he said, urging the Government to “strike a careful balance between austerity and the realization of human rights, taking into account the primacy of States’ human rights obligations.”

European Central Bank President Jean-Claude Trichet said on Thursday reserved judgment on a French proposal to resolve Greece's debt crisis but another ECB policymaker called the plan "a very interesting step."

The French plan has emerged as a possible compromise that could pave the way for private investors' involvement in a rollover of Greek debt without triggering a default or payout in credit insurance -- scenarios the ECB says must be avoided.

The ECB's stance is crucial because it has threatened to refuse to continue accepting Greek bonds as collateral in its funding operations in the event of either credit insurance being triggered, forced private sector involvement, or a rating cut.

"At this stage, we have not yet (got) a position," Trichet told the European Parliament's Economic and Monetary Affairs Committee when asked about the French proposal.

"We are very alert but I cannot give you a precise judgment on what is going on," he added.

Elena Panaritis, a member of parliament for the Pasok party in Greece and a former World Bank economist, discusses the country's austerity program. She talks in Athens with Nicole Itano on Bloomberg Television's "Countdown."

Greece may have averted the worst by passing an austerity package on Wednesday, but the government of Georgios Papandreou will continue to face massive public resistance to its course. German commentators warn that Athens isn't out of the woods yet.

For German Chancellor Angela Merkel, it was "really good news." But many Greeks, it would seem, beg to differ.

The news that the Greek parliament had passed Prime Minister Georgios Papandreou's latest package of austerity measures prompted particularly brutal rioting in the streets of Athens on Wednesday. Demonstrators clashed with police into the early hours of Thursday. Protesters attacked a post office in the Finance Ministry building, while riot police fired tear gas and even threw stones back at demonstrators.

The €28.4 billion ($41 billion) austerity package foresees €15 billion in additional tax revenues over the next five years, combined with savings of over €13 billion through cuts in social benefits and in the public sector. Privatization of state assets will provide an additional €50 billion. The Greek parliament had to pass the package in order to receive the next tranche of aid from the European Union and the International Monetary Fund, otherwise the state would have gone bankrupt within the next few weeks.

The parliament will also vote Thursday on laws relating to the implementation of the austerity measures. Although Wednesday's vote was greeted with relief in the rest of the euro zone, and caused the euro to rise to its highest level against the dollar in weeks, Papandreou will continue to face pressure from the Greek population, many of whom are deeply angry about the austerity program. Resistance from the country's powerful unions is expected, and further street protests seem inevitable.

Some years back a Greek finance minister, fed up with his country’s waste and extravagance, claimed that he could save money by shutting down the national railway and driving its passengers around in taxis. He was accused of hyperbole but seems, rather, to have been guilty of understatement. In 2009 the Greek railway collected just €174m ($250m) in fares and other revenues. Meanwhile, it spent €246m on wages and lost a total of €937m.

On June 29th, with tear gas billowing around the rioters outside the Greek parliament, politicians in principle backed a new punishing austerity plan. As The Economist went to press, they were expected to implement the austerity plan in a second vote. That would open the way for the euro-zone countries to approve a second rescue package for Greece likely to be worth around €120 billion.

Alas, Greece’s austerity plan looks doomed to fail. It does too little to prevent the epic folly of Greece’s railways and other ruinous schemes. It will screw down too hard on ordinary Greeks, with new taxes, spending cuts and a rushed privatisation scheme. And it will almost certainly condemn Greece to recession, strife and an eventual debt default.

Immediate worries about a Greek debt default were allayed on June 29th, with the passage of a first vote in the Greek parliament on an austerity plan. Not before fear had spread well beyond the Aegean. The interest rates demanded by investors to hold Spanish and Italian government debt rose to their highest levels in seven months on June 27th, before slipping back. On June 29th America’s Federal Reserve extended a promise to provide dollars to other major central banks.

The pressure to put together a second bail-out package for Greece remains intense. A proposal from the French banking sector this week on rolling over privately held Greek debt is supposed to clear the way. Not all the details are clear but the plan seems to do too little to help Greece, and too much to help the banks.

The proposal is intended to achieve two inconsistent objectives. The first is to ensure that private creditors contribute to a Greek bail-out, to satisfy German demands that taxpayers should not have to bear all the burden of another euro-zone rescue. The second is to ensure that participation in the plan is seen as voluntary by the ratings agencies, thereby avoiding a declaration of default.

Yesterday, the whole world was watching Greece as its Parliament voted to pass a divisive package of austerity measures that could have critical ramifications for the global financial system. It may come as a surprise that this tiny tip of the Balkan Peninsula could command such attention. We usually think of Greece as the home of Plato and Pericles, its real importance lying deep in antiquity. But this is hardly the first time that to understand Europe’s future, you need to turn away from the big powers at the center of the continent and look closely at what is happening in Athens. For the past 200 years, Greece has been at the forefront of Europe’s evolution.

In the 1820s, as it waged a war of independence against the Ottoman Empire, Greece became an early symbol of escape from the prison house of empire. For philhellenes, its resurrection represented the noblest of causes. “In the great morning of the world,” Shelley wrote in “Hellas,” his poem about the country’s struggle for independence, “Freedom’s splendor burst and shone!” Victory would mean liberty’s triumph not only over the Turks but also over all those dynasts who had kept so many Europeans enslaved. Germans, Italians, Poles and Americans flocked to fight under the Greek blue and white for the sake of democracy. And within a decade, the country won its freedom.

Over the next century, the radically new combination of constitutional democracy and ethnic nationalism that Greece embodied spread across the continent, culminating in “the peace to end all peace” at the end of the First World War, when the Ottoman, Hapsburg and Russian empires disintegrated and were replaced by nation-states.

Global markets have dodged a bullet. Greece has voted "yes" to more austerity, paving the way for the disbursement of €12 billion ($17 billion) in bailout loans and avoiding a messy default.

The vote in the end was relatively comfortable, with 155 Greek lawmakers in favor, including some who previously had vowed to vote against, and 138 against. But investors can't breathe easy yet. Greece still is a source of risk, and the global picture is gloomy.

For Greece, the focus will move to implementation, with another vote due on Thursday. Meanwhile, the French plan to roll over Greek debt falls far short of being a Brady-style solution for Greece and has yet to receive the ratings firms' blessings. Further negotiations with the euro zone and International Monetary Fund aren't likely to be easy. That might mean a continued twin shortfall on both Greek overhauls and funding.

Financial markets breathed a sigh of relief Wednesday after the Greek Parliament approved a five-year austerity plan demanded by international creditors, but investors remain wary that the fix fails to resolve problems facing Greece—and Europe—in the long run.

The measures, which were demanded by international creditors as a condition of a new bailout, eased fears of an imminent default, but market reaction was muted by gains over the past two days, partly on expectations the budget-cutting package would pass.

The Dow industrials ended the day 72.73 higher at 12261.42, capping their biggest three-day winning streak since late March. The Stoxx Europe index jumped 1.7% at 269.8, and London's FTSE 100 index gained 1.5% to 5855.9. Asian markets opened mixed on Thursday, with Japan's Nikkei average unchanged.

Ten hours of intense rioting outside of the parliament in Athens yesterday amplifies the critical juncture for Greece this week. Lawmakers there must vote on so-called austerity measures over the next two days as a condition for receiving another round of bailout funding from international creditors. The government will try to pass spending cuts and tax hikes for all. The alternative is the country falling into default on its debt. More than 50% of that debt is held by public institutions across Europe, according to research from Barclays Capital. What would a default mean for the Euro and countries across the European Union? Why is Greece struggling? What can rebuild its economy?

Guests:

Tom Stoukas, Reporter with Bloomberg News, currently in Syntagma Square in Athens, Greece

Yanis Varoufakis, Professor of Economic Theory at the University of Athens

Aristides Hatzis, Associate Professor of Philosophy of Law and Theory of Institutions at the University of Athens; author of the Greek Crisis blog

A funny kind of democracy was on display in Greeceon Wednesday. Under orders from Brussels and Washington, MPs in Athens passed a slew of stringent measures to raise €28bn (£25bn) in a hurry – even while hundreds of thousands of protesting Greeks faced massive amounts of teargas and riot police. After the package was voted through by a wafer-thin majority, politicians were escorted out of the parliament by police. For anyone who has ever worried about the democratic deficit in Europe, here it was, laid bare on the rolling-news channels. And those protesters were not a vocal minority; polls suggest that up to 80% of Greeks reject these austerity measures.

This is not only criticism; it is an analytical point too. As Alexis Tsipras, head of the far left Synaspismos party, shouted outside the parliament building: "You won't go far with all the people against you." The majority of lawmakers inside would probably agree with him. Having passed the austerity measureson Wednesday, Athens MPs will on Thursday vote on laws to implement them. It is hard now to believe that prime minister George Papandreou will not succeed here, too. Still, legislating does not make it so – in Greece, with its long-standing mistrust of the state, more than anywhere else in western Europe. And what the socialist government has just accepted is just as brutal and radical as any structural-adjustment policy imposed by the International Monetary Fund – only it has been forced on Greece by its supposed friends and neighbours in the eurozone.

Yesterday’s vote in Greece may have gained the leaders of the European Union a bit more time, but it has certainly put up the eventual cost of the crisis, not least to Germany. More than 20 years ago, Nicholas Ridley was forced to resign from the British cabinet for describing economic and monetary union as a “German racket”. The assertion was unfair to Germany but, even today, there is a consensus that it reaps huge benefits from Emu. This was only ever partially true; it is no longer true at all.

German manufacturing has certainly benefited from Emu and earlier from the exchange rate mechanism, both of which were used to maintain the competitiveness of its manufactures. However, this was at the expense of German consumers and taxpayers. In so far as Mr Ridley’s “racket” had substance, it reflected an implicit collusion between German manufacturers, bankers and politicians. Certainly, outside Emu, the likely appreciation of the Deutschmark would have made German manufacturers less competitive, but this would have stimulated the expansion of other (underdeveloped) sectors of the economy, raising economic growth and living standards.

German export success is reflected in its current account surplus, but this has been recycled into other countries within Emu, including Greece. Emu replaced exchange rate risk with credit risk but, encouraged by pro-Emu disinformation markets, mispriced credit risk. Emu was, above everything, a credit bubble. Well, the credit bubble burst and, when that happens, usually creditors get hurt – but not within Emu where taxpayers are, in effect, bailing out German and other EU banks.

Greece approved the first of two austerity measures on Wednesday despite worsening street violence, in a vote vital to winning fresh international aid so it can pay its debts on time and stave off bankruptcy.

Lawmakers voted by a clear margin for the five-year framework of $28 billion in spending cuts, tax rises and state asset sales, handing a 155-138 vote victory to Prime Minister George Papandreou.

"We must avoid the country's collapse at all costs. Now is not the time to step back," the Socialist premier told lawmakers just before the vote.

The solid margin suggested the government should be able to push through a second package of laws on Thursday, implementing the specific budget measures and asset sales. This would clear the last obstacle to release of 12 billion euros ($17.3 billion) of emergency loans from the International Monetary Fund and European Union, which are essential to meet debt payments by mid-July.

The longer Greece avoids default, the closer European leaders come to breaking one of their oldest taboos by taking responsibility for the finances of a neighbor.

Even as they resist European Central Bank President Jean- Claude Trichet’s call for a “major strengthening” of fiscal ties, European authorities are becoming the biggest holders of Greek debt. That would leave the country a virtual ward of the state, the objection of the bloc’s politicians to sharing sovereignty undercut by their own efforts to save the euro.

“The more debt restructuring is avoided the more Greece’s liabilities are socialized and the more a de facto fiscal union occurs,” said David Mackie, chief European economist at JPMorgan Chase & Co. in London. “If the ECB is successful in its attempt to prevent any kind of restructuring in the near- term, the region will move down the path towards the destination Trichet wants.”

Greek lawmakers yesterday approved an austerity package, clearing the way for the second international rescue in two years, which would expand taxpayers’ stake in Europe’s most- indebted country. For investors, greater subsidies from the strong to the weak risk hurting the German bonds that serve as the region’s benchmark.

The outcome of the scrap may determine whether the euro evolves or runs aground on the concern that its 17 members are too diverse to be united in one currency if some aren’t willing to abide by the rules and others won’t aid those in trouble.

The Greek government on Wednesday voted to approve highly divisive austerity measures that have led tens of thousands of people to take part in heated street protests this week. With its radical savings program, the government in Athens hopes to save close to 80 billion euros. SPIEGEL ONLINE provides an overview of the plans.

Mid-term budget planning. The term may sound harmless, but it contains plenty of explosive material in Greece.

The term refers to the austerity measures approved by the Greek parliament on Wednesday, which include painful cuts to public spending and tax increases. Prime Minister George Papandreou is seeking to impose cuts of a total of €78 billion ($112 billion) by 2015. Additional government revenues of €6.5 billion are also planned this year through increased taxes and other levies. Between 2012 and 2015, a further €22 billion in additional revenues are also expected to be added to government coffers.

Greece's new finance minister, Evangelos Venizelos, has described the new measures as "hard and unfair," but also unavoidable. The coming tax increases and cuts to social services will hit average citizens particularly hard.

At 4.39pm on Wednesday the Greek parliament approved a five-year austerity plan that could sink or save the country.

Many hoped the vote might end the saga that has kept Europe – and markets across the world – on tenterhooks over the past week.

But no sooner had the MPs cast their ballots and European Union leaders had welcomed the "landmark" vote, the real drama began outside parliament where another approach to democracy saw protesters battle with riot police. The clashes continued into the early hours as MPs return to parliament today to vote on a law that will speed the austerity measures through parliament.

Teargas filled the air and Syntagma Square, the nerve centre of Greece's new resistance movement, descended into chaos. Within minutes, the plaza resembled a warzone. The detritus of battle lay everywhere with burning barricades, smashed pavements, shattered masonry, looted shops and destroyed kiosks.

That's one Greek crisis out of the way; get ready for the next. Today's vote in the Greek parliament merely ensures that default will not occur next month, and probably not this year. The European Union, the International Monetary Fund and the European Central Bank will now sign their outstanding cheques from the last bailout. Then they will prepare to write more cheques worth €100bn or so – but with extra strings attached. That's when the next crisis starts, and when default comes back into view.

The lenders have not even agreed on how to design a loan package that can impose modest levels of pain on creditors while not being deemed a "credit event" – the dreaded technical default. The French idea of obliging banks to roll over maturing debt – or encouraging them to "volunteer" to do so – is a contortion that could still fall apart when prodded over coming weeks.

But, even assuming that obstacle can be cleared, consider what Greece has to do to ensure the €100bn actually arrives in tranches until 2014. For a start, it must raise €50bn from privatisations and cut about 150,000 civil service jobs. Is it credible that this will happen on the timetable dictated by Brussels and Berlin? And, if the quarterly health-checks reveal the patient is slacking, are the eurozone lenders prepared to squeeze Greece even harder?

Jim O'Neill, chairman of Goldman Sachs Asset Management, talks about the Greek sovereign debt crisis and its implications for the rest of the euro region. O'Neill, speaking with Erik Schatzker and Deirdre Bolton on Bloomberg Television's "InsideTrack," also discusses the outlook for the euro.

France's proposal for rolling over Greece's debt with banks still needs to be checked to ensure it does not constitute a credit event, ECB Executive Board Member Lorenzo Bini Smaghi said in an interview published on Wednesday.

"The solution put forward by France looks like a syndicated loan which brings together several banks," he told French newspaper Les Echos in an interview published online.

"It's an interesting proposal, but we really need to make sure that it fits the specified framework: no credit event."

President Nicolas Sarkozy outlined a plan on Monday under which French banks, the most exposed to the Greek debt crisis, would reinvest half of the proceeds of maturing Greek debt in new 30-year bonds paying 5.5 percent interest plus a bonus linked to Greece's gross domestic product growth rate.

The move is intended to help pull Greece back from the brink of a default, which could derail a still fragile euro zone recovery and drag the bloc back into recession.

A relief rally swept the European and American markets after an early Wednesday vote by the Greek Parliament to approve an austerity plan.

The plan was passed, a condition set by international lenders for providing more financing and preventing a default, after weeks of uncertainty in financial markets related to the debt problems in the euro zone.

Investors had been bracing for the Greek Parliament’s decision on the package, which includes unpopular wage cuts, tax increases and privatizations. While investors got some relief with the announcement that it had passed, analysts warned that unresolved fiscal issues remained.

“Today’s vote will certainly give some short-term relief to markets, but concerns about the long-term feasibility of Greece’s fiscal plans still remain in place,” said Diego Iscaro, an IHS Global Insight senior economist, in a research note after the vote.

Greece has pulled back from the brink of default and averted a broader eurozone crisis after backing sweeping austerity measures in a knife-edge parliamentary vote.

George Papandreou, Greece’s socialist prime minister, won support on Wednesday for €28bn ($40.4bn) of tax increases and spending cuts, with just one of his party’s 155 parliamentary deputies voting against the package demanded by the European Union and International Monetary Fund.

Defeat could have resulted in the country being cut off from outside financial help – and in effect condemned to economic collapse. However, Mr Papandreou’s government faces a further vote on Thursday to secure fast-track implementation of the measures. Party officials expressed confidence that the boost to the government from Wednesday’s victory would help secure another victory – but a defeat could yet derail the country’s hopes of international aid.

Greece had taken “a vital step back – from the very grave scenario of default”, said José Manuel Barroso and Herman Van Rompuy, the European Union’s two presidents in a joint statement. However, they said a positive vote on Thursday was needed before Greece could receive further payments under a €110bn bail-out put in place last year and agreement was possible on a revised package – to be discussed by eurozone finance ministers on Sunday.

Former U.S. Ambassador to Greece Thomas Miller talks about parliamentary approval of the first part of an austerity plan aimed at meeting European Union aid requirements and the outlook for resolution of the Greek debt crisis. Miller speaks with Mark Crumpton on Bloomberg Television's "Bottom Line."

There are some exotic names flying around Brussels for plans to help the debt-stricken Aegean nation dominating the headlines this week — Vienna-style, Brady-bond inspired, orderly restructuring–and now the gallic-flavored “Caisse d’Amortissement” can be added to the list. Named after a French method of buying public debt and placing it an agency initially conjured up in time of Cardinal Richelieu, its heyday was 1930s France and it is currently being used to offset the country’s huge health-system debt.

Former French President Valery Giscard d’Estaing sat down with a small group of journalists after his keynote speech at the ‘State of the Union’ conference here, organized by the former head of the French employers’ association Denis Zervudacki, and elaborated on the themes he covered, including this modern reworking of a French classic for the Hellenic Republic.

A Greek Caisse d’Amortissement would consist of a contribution from the European Central Bank, some of the European Union structural funds currently channelled to Greece, and a Greek contribution funded partly by privatization. It would then buy some or all of the country’s debt, allowing Greece to return to EU deficit and debt limits, and push through the structural changes needed to get its economy on the right path. The agency would then negotiate with creditors, over how, when and to what extent there would be reimbursement of their original investments. For those dreading the “R” word? “Speculators and banks took their own risks when they bought Greek debt,” General De Gaulle’s former protege said.

“It’s unrealistic to add new debt to a burden which is already unsustainable,” Mr. Giscard said. “A coordinated, organized restructuring should not be excluded.”

Outsiders watching the euro-zone debate on Greece’s finances often have the following question: What are they thinking? The governments are expending much time and energy coming up with a new package of loans for Greece. But with total debt approaching 160% of gross domestic product and a deficit that’s one of the largest in the EU, a major debt restructuring appears unavoidable.

So why delay the inevitable?

The answer, according to a senior euro-zone official involved in the debate, is that time is a valuable commodity – not for Greece, but for Ireland and Portugal, the two other bailed out euro-zone nations. Governments have largely accepted that full repayment by Greece is impossible, the official says. What they are trying to do now is “ring fence” Greece from Ireland and Portugal.

All three countries face messy economic problems, but Greece’s mess is of a different order of magnitude: The budget books were cooked to start with, while the country’s debt was well over 100% of GDP when the first rescue program was negotiated. Greece’s current account deficit, after reaching a whopping 20.4% in 2008, is still, at nearly 12%, the highest in the euro zone.

The new aid program will likely tide Greece over until 2014. The idea is that Ireland and Portugal by then will be able to show that the programs imposed on them in exchange for getting rescue loans are working, the official says. If the programs go according to plan, both countries will have started borrowing from financial markets again.

German Chancellor Angela Merkel said Wednesday that euro-zone leaders would be able to overcome the bloc's ongoing debt crisis, even in the face of difficult decisions that pit national interests against those of the broader currency zone.

"I want to say that we'll get through this crisis," Ms. Merkel said at a conference sponsored by her party, the Christian Democratic Union.

Speaking in Berlin, Ms. Merkel also said that Greece's approval of new austerity measures is an important step for the country and for the stability of the euro as a whole, German Chancellor Angela Merkel said Wednesday in Berlin. The German leader that Greece's vote would also help the country's economy grow and become more sustainable over time. Greece has no alternative other than to become more competitive, Ms. Merkel said in a televised statement. The Greek parliament earlier Wednesday signed off on a new round of austerity measures demanded by euro-zone leaders and the International Monetary Fund in exchange for more aid.

The Greek Parliament passed the first of several austerity votes by a slim margin, prompting more riots on the streets on Greece. WSJ's Steven Fidler offers analysis of what else to expect out of troubled Greece.

Amid strikes and violent public protests, on June 29th Greece's parliament voted in favour of the government's emergency package of austerity measures. The package, which requires a second vote to implement it on June 30th, is necessary. Without it, the European Union and the International Monetary Fund will not release another tranche of a large rescue loan to the country. And without the loan, Greece cannot afford to meet the interest payments on its monumental government debt. But because the package will bear down too heavily on ordinary Greeks without addressing necessary structural reform, it is likely to fail. Many other rich countries have big debt burdens and are facing similar problems. The chart below shows OECD calculations of what it would take governments to reduce gross debt to 60% of GDP by 2026. This is around the level considered healthy and is also the ratio set by the widely ignored Maastricht agreement, which is meant to govern debt in the European Union. It is not pretty.

With today’s vote in favour of a medium term fiscal plan, Greece has just escaped the immediate danger of financial collapse. But this will prove a short lived victory for the Greek government: in the coming days and months a series of crucial decisions are pending which mean the prospect of both fiscal default and political crisis will rarely be far from the headlines.

Greek Prime Minister George Papandreou’s problems begin again tomorrow, with a second parliamentary vote on the implementation of the plan that was barely agreed today. This would create a new body to handle the planned €50bn privatisation drive, and a new package of tax hikes, including on those earning small salaries. A “solidarity tax” is also planned on everyone earning above €12,000 per year, along with higher taxes for consumers and businesses In short, it offers a little something for everyone to hate.

That said, tomorrow’s vote is likely to pass too. It seems unlikely that anyone voting for austerity today would undermine the good it might do for Greece by voting against implementation tomorrow. Yet while passing both votes is a considerable achievement, ongoing waves of public outrage and protest make it difficult to see how this plan can be faithfully and efficiently implemented.

Greece has averted immediate economic disaster after its parliament voted in favour of fresh sweeping austerity measures demanded by the European Union and International Monetary Fund.

The socialist government of George Papandreou, prime minister, won approval for a €28bn ($40bn) package of tax increases and spending cuts by 155 votes to 138 with five abstentions. A defeat for the government could have led to Greece defaulting and thrown the future of the eurozone in doubt.

The vote followed a rowdy two-day debate in parliament and violent demonstrations in the centre of Athens. Mr Papandreou told deputies the IMF and EU were “investing in a new Greece, not the old one – one that we, too, have to believe in.” Without the package “Greece faces a grim future,” warned Evangelos Venizelos, finance minister. “We don’t have another choice . . . We have to stay in the euro.”

Earlier, George Provopoulos, the central bank governor, told the Financial Times that Greece would be committing “suicide” if parliament failed to back the measures.

The Greek Parliament backed Prime Minster George Papandreou’s bitterly contested package of austerity measures on Wednesday, clearing the way for crucial international lending to stave off default over the summer. But thousands of Greeks took to the streets in protest, and some clashed violently with police officers, who responded with tear gas.

The vote, 155 to 138, removes a serious obstacle to the release of $17 billion by the European Union, the European Central Bank and the International Monetary Fund, funds the Greek government needs to pay its expenses through the summer. Questions remain about whether the measures would ultimately cure the debt-ridden country of its many ills. The shape and size of a second bailout, whose planning can now begin, could become clear at a meeting on July 3 of euro zone finance ministers in Brussels.

Stock markets, which began rallying earlier in the day across Europe and much of Asia amid indications that the measures would be approved, moderated after the vote. Investors had feared that a collapse in Greece might have repercussions throughout the international financial system. Two other European Union countries — Ireland and Portugal — have also turned to international lenders for assistance.

Only one member of the ruling Socialist Party voted against the measure, and one opposition deputy voting crossed party lines to support the measure. (Five others voted present, and two members were absent.)

The Greek parliament on Wednesday passed a vital 28 billion euro austerity package, allowing the country to avoid immediate insolvency. Efforts to come up with a vast new bailout for Athens have also made progress this week.

European stocks began rising even before lunch. With Greek Prime Minister Giorgios Papandreou's socialists looking to have enough votes despite their razor-thin parliamentary majority, investors on Wednesday morning were betting against a Greek insolvency.

And lawmakers in Athens didn't disappoint. With 155 out of 300 parliamentarians voting "yes" to the €28 billion ($40 billion) package of spending cuts and tax increases over the next five years, the Papandreou government got the simple majority it needed. A second bill, related to the implementation of the cuts outlined in Wednesday's package, needs to pass on Thursday.

The passage of the belt-tightening measures was a critical step for Greece to avoid immediate insolvency. The European Union had made passage of the package of laws a condition for the release of the next €12 billion tranche from the €110 billion Greek bailout package passed last year. Without that money, Greece would have defaulted on its debt by mid-July.

Still, despite the high stakes, much of the conservative opposition rejected the bill. But with at least one conservative lawmaker voting in favor and a handful of abstentions, the opposition could only muster 138 "no" votes.

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by Petar Pismestrovic

About

This blog is dedicated to the understanding of the current Greek (but also European) economic, political and institutional crisis. It was created by Prof. Aristides Hatzis of the University of Athens, after many requests by his students who seek a source of reliable analysis on the Greek current affairs. Its aim is to post commentary and reports published mainly in the major U.S., European and Greek media and to encourage a rigorous discussion.